Posted on 06/11/2017 10:11:26 AM PDT by Lorianne
Almost every negative thing happening in the car business in particular, ludicrous technical complexity for the sake of electronic gimmickry and also to cope with diminishing returns federal safety and emissions mandates could be gotten under control by the simple expedient of cutting off the monopoly money/debt-financing that makes it all possible.
The seven year loan.
Free money (zero or very low interest).
Give-away leases.
The car industry is riding a bubble thats proportionately as large as the housing bubble of a decade ago. And it is going to pop. For the same reason that a wave has to crest and wash ashore, once set in motion.
Signs of trouble abound. They build them but no one comes. Not without inducements that amount to give-aways.
For several years now the car manufacturers have been resorting to truly desperate measures to prop up new car sales in air quotes because its a dubious proposition to describe as a sale a transaction that involves exchanging the item for a sum insufficient to cover the cost of its manufacture, plus a profit sufficient to make the exercise worthwhile.
Yet that is exactly what is going on.
As new car prices rise, the cash back offers, dodgy leases and other incentives necessary to move them off the lot also rise in frequency and inanity. Examples include the leasing of electric cars for less than the cost of a monthly cell phone contract (Fiat made just such an offer; see here) and below invoice transactions that rely on the manufacturer (e.g., Ford) paying a dealer to sell a car (e.g., manufacturer to dealer incentives) for the sake of getting rid of it, getting it off the books.
Or rather, onto someone elses books.
Give-away leases.
The car industry is riding a bubble thats proportionately as large as the housing bubble of a decade ago. And it is going to pop. For the same reason that a wave has to crest and wash ashore, once set in motion.
Signs of trouble abound. They build them but no one comes. Not without inducements that amount to give-aways.
For several years now the car manufacturers have been resorting to truly desperate measures to prop up new car sales in air quotes because its a dubious proposition to describe as a sale a transaction that involves exchanging the item for a sum insufficient to cover the cost of its manufacture, plus a profit sufficient to make the exercise worthwhile.
Yet that is exactly what is going on.
As new car prices rise, the cash back offers, dodgy leases and other incentives necessary to move them off the lot also rise in frequency and inanity. Examples include the leasing of electric cars for less than the cost of a monthly cell phone contract (Fiat made just such an offer; see here) and below invoice transactions that rely on the manufacturer (e.g., Ford) paying a dealer to sell a car (e.g., manufacturer to dealer incentives) for the sake of getting rid of it, getting it off the books.
Or rather, onto someone elses books.
Once the papers are signed and the car is driven away, it is no longer the dealers problem. He no longer has to worry about it. If the buyer fails to make the payments, it is now the lenders problem.
And that problem is written off, in its turn, when it becomes necessary to do so. The bank makes up the loss via interest and fees on other debt. Or by re-selling the repod vehicle at exorbitant interest to another debtor.
Rinse, repeat.
The dealer, meanwhile, has made a sale and it is so recorded and reported, adding another log to the swaying Jenga tower.
Sound familiar?
But wait theres more!
As the ever-more-desperate measures to prop up new car sales become ever-more-desperate and more and more people who really cant afford new cars buy them anyway, it depresses the used car market. Why buy a used car, after all, when you can buy a brand-new one for about the same monthly payment?
The used car market is cratering and that is a sure sign the fat lady is clearing her throat.
Remember: Interest rates on new cars are lower (even nonexistent) and the loan/debt can be extended over a preposterously long period seven years is now routine while the loan/debt on the used car must be of shorter duration because of the greater and faster depreciation on the used car. The typical three-year-old car is worth about 75 percent of what it was worth when new and will only be worth about 50 percent after another three years. Writing a loan/debt on an asset that will almost certainly be worth less than the balance due on the loan before the loan can be paid off is what you call a bad deal.
The loan/debt limit has probably already been reached. Seven years is a kind of Event Horizon for car loans because after seven years, almost every car regardless of make or model or what it sold for when it was new will be worth less than 50 percent of what it sold for when it was new. They cant keep pushing off the paid-for date in order to keep sales from wilting, permanently.
This is why the bums rush to ride-sharing; to the rent-by-the-hour (via an app) business model that GM (Maven) and Ford (the firing of Mark Fields) and pretty much the entire car industry have embraced as their only possible savior. The people running major companies are many things but idiots they are not some superficial evidence to the contrary notwithstanding.
Poltroons and greedheads, certainly. But not dummies.
They know that they cant keep pushing out loans indefinitely to sell cars. It is not tenable, both because of the debt load (unsupportable) and depreciation, which imposes a physical limit on loan duration. Hence the new rent-by-the-app (and hour) business model. It is the only way the business can continue without going out of business.
Either that or economic sanity returns.
The government stops mandating diminishing returns emissions rigmarole, for instance. And heres a real whopper of an idea: We get scientists, not politicians and regulators to prove that harm (real harm, not some ugsome bureaucrats hypothetical) would result from dialing back the current rigmarole to, say, model year 2000 standards.
Consider: Were new cars dirty in 2000? Were the skies suffused with smog? People choking and coughing, falling comatose into gutters? No, to all of the above. The fact is the cars and the air have been clean for decades but the EPA continues to pretend otherwise, to maintain the fiction of the need for its continued existence.
Same for the presence or absence of back-up cameras and anti-whiplash head rests and whether the car can do an egg-beater roll without its roof crushing. The fact that some people want to be parented doesnt mean the government has the right to parent the rest of us. Let those who want and need adult diapers go ahead and wear them, if they like.
So, the good news out of all this bad news is that it must soon come to an end. The cost-no-objecting and mandating; the noxious, suffocating parenting.
It is going to end because it cannot continue.
In that case then there has been more than a sixty percent loss of purchasing power which is what I said.
Yes, we’ve been had and I don’t understand the way that some seem to look at it. Some years ago I was listening to a man talking about how we all had so much more than people did in the past and I asked him to explain the fact that people I lived around as a child used to own anywhere from forty to one hundred and sixty acres of land and a house with no debt while most in the current era will be lucky to own one acre. His response was that people don’t need all that land now and land doesn’t have the great value in people’s lives that it used to have. Well, if we don’t need it and it has no value why can’t anyone afford it now? Maybe I don’t understand economics.
I agree.
They do look alike, the first one I noticed was the Colorado...now, they ALL look like Nissans...(and shoes)
You said the government figure was 60%.
Hmm. So there is something there other than the computers ...
“as a child used to own anywhere from forty to one hundred and sixty acres of land and a house with no debt while most in the current era will be lucky to own one acre. “
? When I was a child we had seven living in a 900 sq ft two bedroom frame house on less than 1/4 acre.
Our heating was kerosene. We had a wringer washing machine out on the back porch.
One small radio in the dining room and a three-party phone line.
I used to prop myself up in bed to hang my head in the window trying to catch a cooling breeze.
And you say we don’t have that much more now ...
Sure there is more to it, endless payments, lots of molded plastic and an engine they don’t want touched, tampered with, or altered etc. In fact doing that in many cases is illegal. They’re becoming a sealed unit where at the end of it’s life, just throw the damn thing away, like an old computer. Ya think you’re going to see all these late model cars that look like shoes in say 30 or 40 years, like an old Chevys or Fords?
Think again.
I very much agree...That part of America is way out of reach for most folks nowadays.
“Theyre becoming a sealed unit where at the end of its life, just throw the damn thing away, like an old computer. Ya “
Most people don’t touch their ‘sealed units’ because they last so long.
And, there is a better supply of aftermarket performance parts now than ‘30 or 40’ years ago.
CAI, intake manifolds, exhaust systems, cams, tunes.
I have a 2004 F-150xlt excab longbed. 120k mi.
Runs great. I can probably sell it for 8500.
You seem detached from reality. Let me ask you, ya think most people are going to get 250 or 300k + out of one of these late model platforms that look like just like shoes? Will all that plastic hold up? lol...
“You seem detached from reality. Let me ask you, ya think most people are going to get 250 or 300k + out of one of these late model platforms that look like just like shoes? Will all that plastic hold up? lol... “
You must not remember when we had to put pieces of aluminum under the floor mats to cover the rust holes in the floor boards.
In olden days, people bragged about getting 100k miles. Now a Toyota is not considered ‘broken-in’ till it has 100k miles on it.
My SIL took her Camry in for servicing at about 175k. After seeing the oil they asked her when the last time she changed her oil.
She replied, “You are supposed to change the oil?”
At 200k she gave the car to her brother. He is up to about 300k on it.
“Let me ask you, ya think most people are going to get 250 or 300k + out of one of these late model platforms that look like just like shoes? Will all that plastic hold up? lol...”
Ten cars you can expect to last more than 250k miles.
https://www.forbes.com/pictures/ehmk45kehe/acura-rdx-2/#1659777d768b
The link is wormy and requires me to allow their ads. Like cars which look like shoes, no thanks.
I can just see you attending car shows in 30 years featuring vintage Nissan shoe cars!@
Here something really hot and sexy for ya Tex...Does this model shoe car mean "joke" in French? Or maybe, "You got Juked".☺
Anyway, you'll impress everyone when ya pull into the 99 cent store, especially if yours is a different color.
“The link is wormy and requires me to allow their ads. Like cars which look like shoes, no thanks.”
LOL! The site only makes you wait 3 seconds before continuing to the site. Only one ad and you don’t have to view it.
You just don’t want to view information counter to your bias.
“Here something really hot and sexy for ya Tex...Does this model shoe car mean “joke” in French? Or maybe, “You got Juked”
Juke quarter mile 14.9 @ 98 mph. Right up there with the 60’s supercars!
https://oldcarmemories.com/1965-pontiac-gto-truly-a-legend/
And Car Life on another occasion tested a base 4-bbl 389 1965 GTO and managed a 6.6 second 0-60 mph time and a 1/4 mile of 14.8 seconds at 99 mph.
1972 Chevrolet Camaro Z28 0-60 mph 7.4 | Quarter mile 15.3
Juke 14.9 @ 98 mph.
hmmm.
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